How to get bang from the stimulus buck

What kind of fiscal stimulus would have the most impact on the economy? Moody’s Economy.com has made estimates for various different stimulus proposals of the one-year change in GDP for each dollar in government spending or tax cuts. Here are some examples:

Non-refundable lump-sum tax rebate: $1.01

Refundable lump-sum tax rebate: $1.22

Payroll tax holiday: $1.28

Across-the-board tax cut: $1.03

Make Bush income tax cuts permanent: $0.31

Cut corporate tax rate: $0.30

Extend unemployment benefits: $1.63

Temporary increase in food stamps: $1.73

General aid to state governments: $1.38

Increased infrastructure spending: $1.59

These are all estimates churned out by a model, not hard facts. Economy.com chief economist Mark Zandi says the model assumes that getting money to people with lower incomes has a bigger impact “because their saving rates are lower and they’ll spend more quickly.” It also rates government spending as more effective than tax cuts because (a) a portion of tax cuts is saved, not spent and (b) consumer spending tilts more toward imports than government spending does. The long-term growth benefits both of certain tax cuts and of infrastructure spending aren’t factored in to the model–since it’s only estimating the one-year change in GDP.